BioLineRx: With A Lot Of Cash In Hand And Undervalued

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About: BioLineRx Ltd. (BLRX), Includes: GLYC, MRK, PRGO
by: Wilsonville Capital
Summary

BioLineRx Ltd. focuses on in-licensing and developing therapeutic candidates.

It is quite beneficial that BioLineRx has signed agreements with large groups like Merck & Co Inc. and Genentech.

The company should not be trading with an enterprise value of $12 million. Other competitors show larger enterprise value with approximately the same amount of development.

If the company does not execute a reverse stock split soon, the shares may get delisted. In this regard, investors should remember that the share price tends to decline in the long term after reverse stock splits.

The company is offering a total amount of 28 million ADSs and warrants to purchase an additional 28 million ADSs at an exercise price of $0.75.

At Phase 3 of development, expecting to have $55 million in cash after the sale of warrants and with very little debt, BioLineRx (NASDAQ:BLRX) is interesting. In addition, the company trades with an enterprise value of only $12 million, which seems very small. Other competitors at a similar stage of development have an enterprise value of more than $264 million. On top of it, the company is expected to release new data in the next 12 months, which could make the share price increase. With all this in mind, institutional investors should have a look at this name.

Source: Prospectus

Source: Prospectus

Business And Product Candidates

Founded in 2003 and Headquartered in Modi'in, Israel, BioLineRx Ltd. focuses on in-licensing and developing therapeutic candidates. The company enjoys very good relations with academic institutions in Israel and the US, from which it in-licenses novel compounds.

As of February 5, 2019, BioLineRx has two product candidates intended to treat cancer and another drug candidate that is being commercialized. The image below provides further details on the company's pipeline. Note that some of the partners are large organizations:

Source: Prospectus

The most interesting product candidate is BL-8040, which is in phase 3 of development. It consists of a short peptide that functions as a high-affinity antagonist for CXCR4, a chemokine receptor that is directly involved in tumor progression, angiogenesis, and metastasis. The way this product candidate helps treat cancer is described in the lines below:

BL-8040 mobilizes cancer cells from the bone marrow, detaching them from the survival signals in the bone marrow microenvironment and sensitizing them to chemo- and bio-based anti-cancer therapy." Source: 10-K

The company has shown, in a preclinical phase, direct anti-cancer effect and safety and efficacy in clinical studies. BioLineRx also notes that preclinical studies showed how BL-8040 reduces the growth of several types of the tumor including multiple myeloma, non-Hodgkin's lymphoma, leukemia, non-small cell lung carcinoma, neuroblastoma, and melanoma. Finally, the most interesting seems to be the clinical data obtained as regards the activity of hematopoietic stem cells and the benefits in pancreatic tumors. The lines below provide further details on this matter:

Clinical data supporting BL-8040 as a robust mobilizer of hematopoietic stem cells (CD34+ CD38- CD45RA- CD90+ CD49f+), or HSCs, associated with long-term engraftment was presented at the American Society of Hematology Annual Meeting and Exhibition in December 2017. Clinical data supporting the ability of BL-8040 to promote T cell infiltration into pancreatic tumors were presented at the ASCO Gastrointestinal Cancers Symposium, or ASCO-GI, which took place in January 2018." Source: 10-K

The image below provides details about Phase 3, which commenced in Q4 2017 and expects to have a total of 177 patients. Data is expected for the year 2020.

Source: Presentation

It is also quite beneficial that BioLineRx has signed agreements with large groups like Merck & Co Inc. (MRK) and Genentech. The image below provides further details on this matter:

Source: Presentation

Regarding BL-5010, for the treatment of skin lesions, it seems to be in the phase of commercialization. The company signed a licensing agreement with Perrigo (PRGO). This large healthcare company is intended to commercialize BL-5010. According to the annual report, it received CE Mark approval for BL-5010 and commenced commercialization in the second quarter of 2016. In February 2019, the BioLineRx had not reported any revenue, thus perhaps investors should be more interested in the other products of BioLineRx. The lines below provide further details on this matter:

In March 2016, Perrigo received CE Mark approval for BL-5010 as a novel OTC treatment for the non-surgical removal of warts. The commercial product launch of this first OTC indication (warts/verrucas) commenced in Europe in the second quarter of 2016." Source: 10-k

Balance Sheet

As of June 30, 2018, the company's financial situation seems very stable with an asset/liability ratio of 8.6x. The amount of cash in hand and short-term bank deposits is very significant, equal to $41 million, 78% of the total amount of assets. Investors should appreciate large amount of liquidity owned by BioLineRx. The image below provides further details on this matter:

Source: 10-Q

The amount of liabilities is not very significant and should not worry any investor. The total amount of liabilities is $6.02 million with financial debt of only $0.2 million. The image below provides the list of liabilities:

Source: 10-Q

The contractual obligations should be reviewed, but they do not show troubles. The total amount of contractual obligations is equal to $7.3 million, which is way below the total amount of cash. The image below provides further details on this matter:

Source: 10-K

Cash Burn Ratio

In the six months ended June 30, 2018, the amount of research and development expenses was equal to $9.5 million with $1.8 million in general and administrative expenses. The total net loss in this time period was equal to -$10.9 million. In the six months ended June 30, 2017, the net loss was very similar, equal to -$9.7 million.

Source: 10-Q

The net income loss in 2017 was equal to -$24.5 million. Using this figure and the total amount of liquidity, BioLineRx should run out of cash in one to two years. Please note that the company said that it would run out of cash in 2020. However, with the new sale of warrants and ADSs, BioLineRx should be able to operate for a longer period of time. The lines below were included in the last annual report:

As of December 31, 2017, we held cash and short-term investments of $49.5 million. We believe that our existing cash and investment balances and other sources of liquidity, not including potential milestone and royalty payments under our existing out-licensing and other collaboration agreements, will be sufficient to meet our requirements into 2020." Source: Prospectus

Investors should review the amount of cash very closely. Keep in mind that being without cash, the company may try to sell equity, which could lead to share price depreciation. It is the most serious risk on this name.

Not Many Institutional Investors

The assessment of shareholders is not that beneficial. The list of shareholders with more than 5% stake consists of only two companies. It means that the company has not been able to attract many institutional investors, which may not say a lot about the quality of the company's research activities. Many investors may not look at this name because of this reason. The image below provides further details on this matter:

Source: 10-K

Letter From The NASDAQ

On December 3, 2018, the company received a letter from the NASDAQ exchange noting that the shares were trading below $1.0. If the company does not execute a reverse stock split soon, the shares may get delisted. In this regard, investors should remember that the share price tends to decline in the long term after reverse stock splits. The image below provides further details on this matter:

Source: SEC Filing

This is a serious risk. If the shares get delisted from the NASDAQ, the amount of liquidity will diminish. Fewer investors will have access to the company as many funds don't invest over-the-counter.

Sale Of Warrants And Use Of Proceeds

As of February 5, 2019, BioLineRx announced that it is selling warrants and ADSs. The use of proceeds is beneficial as the company does not expect to use the money to pay existing shareholders. The money is expected to be used for financing clinical trials and other purposes. The lines below provide further details on this matter:

Source: Prospectus

The sale of warrants may not be appreciated by certain investors. Stock dilution usually pushes the share price down, so their reaction is reasonable. With that, BioLineRx has already warrants along with a significant amount of cash in hand. With this in mind, the situation of the company does not seem quite dramatic. BioLineRx has enough resources to sell warrants at a good price and make a proper deal. Common stockholders should not be worried about these convertible securities. It is only another source of financing.

Expected Valuation And Milestones

The company is offering a total amount of 28 million ADSs and warrants to purchase an additional 28 million ADSs at an exercise price of $0.75. The lines below provide further details on this matter:

Source: Prospectus

As of September 30, 2018, the company had 108 million shares with 6.9 million issuable upon the exercise of other warrants at $2.72 per share, 11.7 million issuable upon the exercise of options among others. The lines below provide further details on the convertible securities issued by BioLineRx:

Source: Prospectus

Assuming 126 million shares outstanding and issuable and adding 28 million ADSs, the number of shares issuable and outstanding is equal to 154 million shares. As of February 2, 2019, with the share price of $0.44, the market capitalization equals $67 million. The proceeds from the sale of ADSs are expected to be equal to $14.1 million. Adding cash and deposits of $41 million, the liquidity after the transaction will be equal to $55 million. With all this in mind, the expected enterprise value will be equal to $12 million.

The company does not seem to offer an interesting opportunity in 2019-2020. The data from the Phase 3 is expected to be released in 2020. In addition, the company expects to release about 3-4 data readouts in the next 12 months. If the data is beneficial, the stock price should increase. The information below is from a recent business presentation:

Source: Presentation

There are many competitors developing products that could compete with BL-8040. Some of them are large and some others are small companies. The lines below provide further details on this matter:

Source: Prospectus

Among the small competitors, Polyphor has a market capitalization of CHF 237 million and it is at Phase 3 of development like BioLineRx. The image below provides further details on this matter:

Source: Polyphor's Website

Another competitor, GlycoMimetics (GLYC), has an enterprise value of $264 million, one product at Phase 3 of development and another one at Phase 2 of development. The image below provides further details on this matter:

Source: GLYC's Pipeline

With all these figures in mind, BioLineRx seems undervalued as compared to other peers. After the offering, the enterprise value is expected to be equal to $12 million, and there are competitors trading with an enterprise value of $264 million and CHF 237 million.

Being very precise about the valuation of BioLineRx is very difficult. Keep in mind that the products of BioLineRx are a bit different from those of competitors. With that, $12 million seems too low. The market seemed to overreact to the recent ADSs offering.

Conclusion

At Phase 3 of development, with a good amount of cash in hand and almost no financial debt, the financial situation of BioLineRx seems appealing. In addition, the company should not be trading with an enterprise value of $12 million. Other competitors show larger enterprise value with approximately the same amount of development. Finally, with new data to be released in the next 12 months, certain investors may believe that this name is a serious opportunity.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.